Comp Time in the Private Sector: What’s Allowed (and What Isn’t) Under the FLSA

Big picture: comp time under the FLSA

Under the FLSA, non-exempt employees must receive at least 1.5× their regular rate of pay for all hours worked over 40 in a workweek. The statute allows a limited alternative—banking compensatory time off instead of cash overtime—only for public agencies (federal, state, local governments and certain public entities). Private employers generally cannot substitute comp time for overtime pay across workweeks.

Definitions: comp time vs. flex time vs. PTO

Compensatory time off means time off accrued instead of cash overtime at a rate of 1.5 hours per OT hour. The FLSA permits this for public agencies under strict rules. In the private sector, “comp time” is often used loosely to mean any time off, but using it to replace OT is not permitted.

Flex time is scheduling within the same workweek (for example, working longer on Monday and leaving early on Friday) so that weekly hours do not exceed 40. This can be lawful under federal law, though daily overtime rules in some states limit how far flexing can go.

PTO/vacation/sick are benefits. Employers may offer or require PTO use consistent with policy, but cannot use PTO as a credit to erase overtime once more than 40 hours have been worked in the week.

What private employers may do (and how to do it right)

1) Use flex scheduling inside the workweek

Overtime is calculated by workweek. If an employee works 10 hours on Monday, the employer may schedule 6 hours on Friday to keep the week at 40 and avoid overtime. Once the employee actually exceeds 40 by week’s end, however, overtime is owed. Note that in states with daily overtime (e.g., California), working 10 hours in a day may already trigger daily OT regardless of total weekly hours.

2) Offer paid time off in addition to overtime

Private employers can grant extra PTO as a reward for busy periods—on top of paying cash overtime. For example, “If you work Saturday overtime, you’ll receive overtime pay plus one extra vacation day.” Because OT is still paid in cash, this approach is lawful.

3) Provide comp time to exempt employees as a perk

Executive, administrative, and professional employees who are exempt from overtime can receive “comp time” days as a morale benefit. Avoid partial-day salary deductions that would jeopardize the salary-basis test; record and grant full or half-day PTO credits instead.

4) Use make-up time options where state law allows

Some jurisdictions allow employees to request “make-up time” (e.g., working extra hours on one day to make up for time lost on another day in the same week). This is a creature of state law and comes with strict consent and recordkeeping requirements. When in doubt, pay overtime.

What private employers may not do

• Bank hours across weeks (e.g., “Work 48 this week, take 8 off next week”): overtime still must be paid for the 8 hours over 40 this week.
• Average two-week pay periods (e.g., 48 one week, 32 the next): the FLSA does not allow averaging to avoid overtime.
• Replace OT pay with PTO after the fact. Paying straight time and telling employees to use PTO later is not an OT substitute.
• Force off-the-clock time to make up for long days. All hours “suffered or permitted” to work are compensable.
• Reclassify employees as independent contractors to avoid OT where the economic-realities test shows an employment relationship.

Public-sector comp time (for context only)

Public agencies may offer comp time in lieu of cash overtime if there is a prior agreement or understood arrangement with the employee or union. Accrual must be at least 1.5 hours of comp time per OT hour. There are caps—generally 240 hours (which represents 160 hours of overtime work) and 480 hours for certain public safety roles. Employees must be permitted to use comp time within a reasonable period after requesting it unless doing so would seriously disrupt operations. Unused balances must be paid at the employee’s regular rate upon termination, and employers may cash out comp time under set conditions. These rules do not authorize private-sector comp time.

Worked examples — private sector

Example 1: Flex within the week (federal law only)

Example 2: Banking hours across weeks (not allowed)

Example 3: Daily overtime state

Example 4: Extra PTO in addition to overtime

Example 5: Exempt employee “comp time”

Designing a compliant private-sector policy

• Define the workweek (fixed and recurring 168-hour period) in writing.
• Forbid banking hours across weeks in lieu of overtime; state this plainly.
• Allow flex scheduling within the week where lawful; caution managers about daily-OT states.
• Clarify PTO rules (request, approval, carryover) and state that PTO will not offset overtime obligations.
• Provide manager training on off-the-clock risks, travel time, on-call time, and remote work communications.
• Keep records of hours worked, schedules, PTO grants, and any “make-up time” requests required by state law.
• Audit payroll periodically for averaging, banking, or misclassification errors.

Quick Guide (English)

1. Private sector cannot replace OT with comp time across weeks; pay cash overtime.
2. Flex inside the week to avoid exceeding 40 where lawful; watch states with daily OT.
3. Exempt staff may receive “comp days” as a perk, but don’t dock salary for partial days.
4. Never average weeks or trade this week’s long hours for next week’s time off.
5. Put it in policy: define the workweek, ban banking, outline PTO, and train managers.
6. When unsure, pay—overtime compliance is cheaper than a wage-and-hour claim.

FAQ (English)

1) Can a private employer bank comp time at 1.5 hours per overtime hour?

No. That system exists for public agencies only. Private employers must pay cash overtime when weekly hours exceed 40 under federal law.

2) Can we let employees work extra this week and take a day off next week instead of overtime?

No. That is averaging across workweeks and is not permitted. You may adjust schedules within the same week to keep totals at or below 40 (subject to state rules).

3) What about flexible schedules such as four 10-hour days?

Federally, 4×10 schedules are fine if the workweek is defined and overtime over 40 is paid. In states with daily OT, hours over the daily threshold may still trigger overtime even if weekly hours are 40.

4) Can we grant comp time to exempt employees?

Yes, as a benefit. Do not reduce the salary for partial-day absences; award whole or half-day PTO credits and keep the salary basis intact.

5) May we require employees to use PTO when they work overtime?

You can manage PTO according to policy, but PTO cannot offset or replace the obligation to pay cash overtime for hours over 40 in the week.

6) We forgot and let a manager bank comp time. How do we fix it?

Pay the unpaid overtime for each affected week (plus any applicable premiums under state law) and correct your policy and manager training. Consider paying interest or liquidated damages where required in settlements.

7) Is “make-up time” legal?

Only where state law creates a program with strict rules (employee request, same week, written records). It does not allow averaging across weeks or avoiding daily OT thresholds.

8) Do union contracts change the private-sector rule?

Collective bargaining agreements may set richer benefits, but they cannot waive federal overtime rights. Comp time banking in lieu of OT is still not permitted for private employers.

Technical base — key legal references (English)

• 29 U.S.C. § 207(a) — General overtime requirement (“time and one-half”).
• 29 U.S.C. § 207(o) — Compensatory time; applies to public agencies and sets accrual caps and cash-out rules.
• 29 C.F.R. Part 553 — Public agency regulations on comp time (e.g., §§ 553.20–553.28 on agreements, accrual, use, caps, and payment).
• 29 C.F.R. Part 778 — Overtime and regular-rate principles; weekly, not biweekly, computation.
• 29 C.F.R. § 541.602 — Salary-basis rules for exempt employees (no partial-day docking outside limited exceptions).
• DOL Fact Sheets: #22 (Overtime), #30 (Compensatory Time for Public Sector), and state labor-department guidance on daily overtime and make-up time.

Conclusion

Think of comp time as a public-sector tool. In the private sector, employers must pay cash overtime whenever a non-exempt employee exceeds 40 hours in the defined workweek (or daily triggers under state law). To stay compliant and still manage workloads, use same-week flex scheduling, pay cash OT, and—if you want to reward extra effort—grant additional PTO on top. Write a clear policy, train managers, and audit timekeeping regularly. Those practices reduce risk and promote fairness while keeping operations predictable.